candooman

CDS Regulation: Just One Simple Rule

The basic problem that caused this financial and consequently, our economic disaster is people do not understand risks. When they do understand, their greed overwhelms it - which is the basis for the 'bigger fool theory' - as in Ponzi Schemes and 'bubbles'.

In order to put a check on people's destructive behaviors, sellers of CDS' should be required to have 20% assests backing up all their risks exposures. To prevent buyers of CDS' from gaming the system (and allowing Sellers' collusion), they should be limited on how much CDS' they can buy, say 80% of their bond obligation. This is similar to a homeowner's insurance deductables - a disincentive to bad behavior. All this have to be embedded into law and with heavy penalties (mandatory jail time) for individuals and corporate management who push their employees - directly or indirectly - to violate them. Fining Corporations do not work.

This may sound harsh but look at the millions of people now out of work, having their houses foreclosed, loosing their other assets, etc. And what happened to the perpetuators? Why, they of course were rewarded with big bonuses and salaries..... a big portion of which was subsidized by who else but US, the taxpayers. I am still thinking of how to penalize our lawmakers who created laws to make this all happen. Booting them out of office is too mild a punishment ... and some do not get punished at all --- Gramm, Barney Franks, etc.